Bitcoin 2022 Showcases Evolution of the Crypto/Blockchain Ecosystem

When I studied ecology at university – a long time ago – a big question was whether diversity gave ecosystems stability or stability let ecosystems become diverse.?“Diversity” meant all the different business models that species have for making a living in nature, and “stability” meant very small fluctuations in population levels.?

What has this to do with crypto??Actually, quite a lot.?We can think of the crypto/blockchain universe as an ecosystem with all kinds of participants providing a broad range of services and consuming various resources.?As this diversity grows the interrelationships increase too.?Going back to ecology, it is difficult to prove scientifically what the reality is, but I always believed that diversity led to stability, not the other way round.?And I think we have good reason to believe that is exactly what is happening with crypto and blockchain right now.

Covenants – Boring, but Necessary

Here are a couple of data points from last week’s Bitcoin 2022 conference in Miami.?I attended one session on covenants, which are a boring legal topic to most people, but are very important in areas like traditional finance.?What are covenants you ask.?They are promises in a contract.?A non-compete clause in an employment contract is a covenant.?All the do’s and don’ts created by a Homeowners Association are covenants.?And so are a lot of terms in loans, like the lender having their books audited, or maintaining specific asset-to-debt ratios.?As crypto lending increases, and crypto gets put into trusts, the need for covenants is growing.?None of this is sexy and likely to excite crypto hustlers but you can be guaranteed that a lot of high-priced lawyers are going to love it. ?Like it or not, embedding these “suits” in the ecosystem is going to make it more diverse and stable.

Derivatives – More Math

The next data point from Bitcoin2022 was a panel during the Industry Day that spoke about derivatives.?Some of the panel members were extremely experienced in derivatives, like options, based on commodities, equities, and debt instruments.?Derivatives appeal to people who enjoy mathematics, so again, something that on its surface is not sexy.?However, derivatives can allow you to hedge risk and get leverage, so they are appealing on both the fear and greed fronts.?Listening to the panel and seeing how highly experienced traders have become involved in crypto provided more proof of growing diversity.

The Ecosystem is Maturing

All biological ecosystems are decentralized, not centrally planned, and yet they function.?Although we have only touched on a couple of data points, Bitcoin 2022 provided plenty of evidence that the decentralized crypto/blockchain ecosystem is growing a mesh of complex interrelationships that will likely provide feedback loops that increase stability, just like the biological counterparts.?That is a good thing.?